Comparing Public and Private Sector Decision-Making Practices

Abstract

Public and private sector decision making is studied with an experiment. The study compares decision making in a tax-supported general purpose governmental agency with that done by a business firm selling to a market, using a simulation to capture differences in the preferences and practices of mid-level managers working in the two sectors. The simulation calls for participating managers to assess the risk and prospect of adopting budgets tailored to match each sector. A cognitive culture that stresses analysis, speculation, bargaining, or networking is employed to fashion a budget appropriate for a public and a private sector organization, each with a controversial and a noncontroversial budget amount. The literature on public/private differences was consulted to make predictions, suggesting that public sector managers would favor bargaining and networking and private sector managers would favor analysis and speculation. The cognitive style literature suggests that managers favor budgets constructed with an approach that is consistent with their preferred cognitive style and see less risk in the choice, except in a public setting where risk would be unaffected. The study finds that private sector managers are more apt to support budget decisions made with analysis and less likely to support them when bargaining is applied. Public sector managers are less likely to support budget decisions backed by analysis and more likely to support those that are derived from bargaining with agency people.